Sports Direct boss Mike Ashley is a man that surprises the City like no other and at the weekend he did just that by acquiring an 11% stake in House of Fraser from Scottish retail entrepreneur Sir Tom Hunter.
The Newcastle United owner made his move at a critical time for House of Fraser - the department store group’s owners were poised to sell to China’s Sanpower.
The deal prompted House of Fraser to threaten Hunter with legal action. And it’s also got everyone asking what Ashley’s agenda is.
Ashley’s moves are typically brazen, whether it’s buying shares in Debenhams as he did in January, or rumours that he’s plotting to buy Scottish football club Rangers.
Ashley has had his eye on 165-year-old House of Fraser for some time. It was reported that House of Fraser was top of Ashley’s shopping list in late 2012, when he was thought to be in the process of buying its chairman Don McCarthy out of the business. The deal would have handed control of the retailer to Ashley.
This time around Ashley has settled for a minority investment in the business. The question on everyone’s lips is why has he nabbed this stake. The sudden purchase could have been a last-minute attempt to try and derail the deal with Sanpower. But analysts remain unsure.
Conlumino group research director for global retail Maureen Hinton says: “I think Mike Ashley is very good at spotting an opportunity to make some money. It’s probably a move to make money by being bought out or making money by shares being bought out.”
Another analyst, who asked not to be named, said: “He knows Tom Hunter pretty well and I guess with his interest in Debenhams, he’s got some ideas about department stores and wants to be involved in some way. It’s difficult to say why now - he might have thought the moment would have passed if he didn’t.”
Ashley is known to be a bit of a gambler – he surprised the City in January when he bought a 4.6% stake in Debenhams before selling it and taking a complex financial option, which could mean the billionaire take a larger stake at a cheaper price in the future.
Hinton describes Ashley as an opportunist but adds that “you never really know with him, but I’m sure he has a strategy. It’s probably a short-term one because of his interest in Debenhams. It’ll probably make life difficult for him if say, he ever bought House of Fraser completely. Debenhams fits more in with his sports ranges”.
However if Ashley’s strategy is a more considered long-term approach, rather than a way for him to make quick buck, the House of Fraser stake could be a way for him to flex his muscle and try and join up his range of brands with House of Fraser.
When McCarthy and Ashley were in talks in 2012, sources indicated that the latter could convert unprofitable stores into Sports Direct branches, while focusing on growing the better shops into a stellar retail business.
One analyst says: “I think he’s positioning himself for the long term.”
Hinton says that by taking a substantial stake in House of Fraser, the Sports Direct boss holds influence over the department store group which can help with his own businesses. She believes that brands such as Dunlop could sit well within House of Fraser.
However, it’s thought that Ashley won’t have a position on the board and questions hang over just over how much of an influence he will have on the department store’s strategy.
It could be that Ashley views the stake as an opportunity for his other brands, which include Kangol and Karrimor, and fascias such as USC and Republic. With Sanpower’s expertise in China, Ashley could be eyeing the deal as a way to enter the country, which is seen as a complex market to launch into.
“We’re doing a report on China right now and we’ve found that having a partner in China is really essential [in succeeding],” says Hinton.
Whatever the reasons for Ashley’s latest move, all eyes will be on the billionairre to see what other mischief he can create for his retail peers.